MPs urged to drop VAT break for clubs

TDT | Manama

Email: mail@newsofbahrain.com

A plan to give civil society groups a VAT break should be dropped because it would drain the state budget, breach Gulf tax rules and invite further demands for special treatment.

The bill would add a new clause to article 53 of Bahrain’s VAT law, giving a zero rate to ‘the supply of social care services and related goods and services’ to associations, social and cultural clubs, and private bodies working in youth and sport.

MPs had put forward the change on the grounds that such groups carry out non-profit work for society and deserve aid similar to that given to schools and health care bodies.

But in a memorandum to Parliament, the government said the case had not been made.

It told the Council of Representatives that Bahrain already funds and helps such groups through grants, state land, free use of halls, training, legal help and financial advice.

The government said the bill was flawed on five fronts. It said there was already a working aid system, that tax law was the wrong tool for welfare aims, that the bill would cut public income, that it broke with the core rules of VAT, and that civil society groups could not be treated the same way as schools and hospitals.

Social groups under the Ministry of Social Development already receive direct grants, funds for rehabilitation centres, project aid, state-owned sites, free use of ministry halls and partnership deals to run ministry-linked homes, the memorandum said.

Cultural and arts groups also receive aid under a 2015 rule for bodies overseen by the Bahrain Authority for Culture and Antiquities. That help can cover money for activities, foreign trips, travel costs, shipping works or equipment, venues, media help and time off for members taking part in events.

Sports clubs and youth bodies receive yearly funds through the General Sports Authority, along with help for grounds, repairs, equipment, refereeing, coaching, national teams, training camps, sports buildings and talent schemes.

Youth centres and youth empowerment centres are also given funds, training and other help by the Ministry of Youth Affairs, the government said.

Taken together, the government said, these schemes give social, cultural, youth and sports bodies a direct path to state aid without tampering with the VAT system.

It said grants and budget schemes were better suited to welfare aims because they can be aimed at named groups, checked, changed and measured.

Zero-rating, by comparison, would not merely lower costs for the bodies named in the bill, the government warned.

Under VAT rules, a zero-rated supply remains within the tax system. The supplier does not charge output tax, but can deduct or reclaim input tax. That would leave the public purse carrying an indirect cost, the memorandum said.